Target Corporation

Description of the company:

Target Corporation operates general merchandise stores in the United States. As of January 28, 2012, the company had 1,763 stores in 49 states and the District of Columbia. The company’s segments include U.S. Retail, U.S. Credit Card, and Canadian. The U.S. Retail segment includes the company’s merchandising operations, including its integrated online business. The company offers both everyday essentials and fashionable, differentiated merchandise at discounted prices. Its online shopping site offers similar merchandise categories to those found in its stores, excluding food items and household essentials.
The U.S. Credit Card segment offers credit to qualified guests through the company’s branded proprietary credit cards, the Target Visa, and the Target Card. Additionally, the company offers a branded proprietary
Target Debit Card. The Canadian segment consists of leasehold interests in Canada that are purchased from Zellers, Inc. It owns leasehold interests in 189 Zellers sites. The company operates Target general merchandise stores, the majority of which offer an assortment of general merchandise and various limited food assortment than traditional supermarkets. The food assortment includes various perishables and various additional dry, dairy, and frozen items. In addition, it operates SuperTarget stores with general merchandise items and a line of food items comparable to that of traditional supermarkets. Target.com offers an assortment of general merchandise, including various items found in its stores and a complementary assortment, such as extended sizes and colors, sold online. The company also sells various products under its owned and exclusive brands.. The company also sells merchandise through programs, such as ClearRx and GO International, and through periodic exclusive design and other creative partnerships. It also operates in­store amenities, such as Target Cafe, Target Clinic, Target Pharmacy, and Target Photo, and leased or licensed departments, such as Target Optical, Pizza Hut, Portrait Studio, and Starbucks. The company's products categories include household essentials; hardlines; apparel and accessories; food and pet supplies; and home furnishings and decor.

Description of the Industry and Target’s Place in the Industry
Target Corporation competes in what Fortune magazine defines as the “General Merchandisers” industry.
As its name would suggest, a firm competing in the general merchandising industry is defined by carrying a wide variety of consumer products, both in large physical brick­and­mortar outlets as well as online.

Competition among rivals within this industry is very high. The competitors sell, for the most part, similar or identical products in locations very near to each other. For example, 99% of Target’s stores are located within a 10­minute­drive radius of a Wal­Mart, KMart or both.

The threat of new entrants, in contrast, is very low, due to high barriers to entry. Entering the general merchandising industry requires large capital outlay and necessitates the construction of hundreds of outlets across the US in order to compete with the current market leaders, who already enjoy economies of scale, brand recognition and relationships with suppliers.

The threat of substitutes is medium. Consumers can substitute the selection offered by a general merchandiser by visiting multiple partial substitutes ­ in other words, they can simply visit a few different, smaller stores instead of a general merchandiser and get the same products. However, consumers cannot find a substitute for the convenience offered by the general merchandisers’ “everything under one roof” strategy. The power of suppliers to general merchandisers is low. General merchandisers have large product lines, meaning a diversity of suppliers, and in addition purchase in large volumes. Further, general merchandisers have leverage over their suppliers with the threat of expanding their own brand label offerings (i.e. Target brand diapers).

The power of buyers is also low. Because general merchandisers offer such a wide variety of products, and to individuals rather than to businesses, individual buyers cannot exert much influence over any general merchandiser. While firms certainly compete on customer service in this industry, one buyer threatening to leave one firm for a competitor would not yield the same influence as, for example, Target threatening to leave one of its suppliers for a supplier’s competitor.

Target is the undisputed #2 player in the general merchandising industry. #1 is, by far, Wal­Mart. While those numbers alone would suggest that Target could potentially rise to the top of the industry through effective strategy development and implementation, examination of the firms’ respective financials reveals otherwise. Wal­Mart dwarfs Target, taking in more than 6 times Target’s revenue and net income in 2011.

Wal­Mart is the industry’s price leader, and Target (and every other firm for that matter) simply lacks the ability to effectively compete with Wal­Mart’s prices. Target, therefore, competes on quality and value rather than price. Target’s commitment to quality establishes a solid brand identity and differentiates the
4firm from Wal­Mart, and while it may never become the industry leader, the strategy has allowed the firm to remain profitable and successful while other competitors, such as Sears and KMart, struggle to compete with Wal­Mart. Target’s place as the #2 player in the general merchandising industry is secure for the foreseeable future.

Description of the Macroeconomic Environment in which the Company & the Industry Operate
The economic crash in 2008 hit most of the general merchandising industry hard. Consumers suddenly had less income to spend and flocked from the quality­centric Target to the price­centric Wal­Mart to buy similar or identical products (while Target’s revenue growth slowed in the immediate aftermath of the crash, Wal­Mart took in more revenue than any other company in the entire world].
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As proven in 2008 and ‘09, Target’s commitment to quality rather than low prices makes it extremely susceptible to changes in the economy as a whole. When the economy tanked, consumers had no problem moving from Target to a low­priced competitor. However, when the economy performs well, Target is in a good position to outpace its competitors, especially Wal­Mart, as consumers enjoy increased discretionary income and can choose quality over low prices, as evidenced by the firm’s stock price dramatically increasing during the late 90’s and the initial part of the 2000’s, a booming period.
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Target has seen its revenue once again start to grow at a consistent pace since 2010, despite the economy not yet returning to anything resembling a booming state. As Wal­Mart prices many other general merchandisers out of the market, Target may be in an excellent position to reap the lion’s share of the general merchandising industry’s benefits during the next economic upturn.